TY  - JOUR
AU  - Kremer,Michael
TI  - Why are Worker Cooperatives So Rare?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6118
PY  - 1997
Y2  - July 1997
UR  - http://www.nber.org/papers/w6118
L1  - http://www.nber.org/papers/w6118.pdf
N1  - Author contact info:
Michael Kremer
Harvard University
Department of Economics
Littauer Center M20
Cambridge, MA 02138
Tel: 617/495-9145
Fax: 617/495-7730
E-Mail: mkremer@fas.harvard.edu
AB  - This paper argues that worker cooperatives are prone to redistribution among members, and that this redistribution distorts incentives.  I assume that employment contracts are incomplete.  In the model cooperative members pay in a capital contribution to purchase equipment.  They then receive shocks to ability. Each worker's (observable) output depends on ability and on effort, neither of which can be observed separately.  After ability is realized, members vote on a wage schedule as a function of output.  If the median member has less than average ability, the cooperative will vote for a redistributive schedule, dulling incentives.  Whereas workers in firms owned by outside shareholders would quit if the firm redistributed away from them, cooperative members will be reluctant to leave, since this entails forfeiting the dividends on their capital contribution. The model can explain why cooperatives typically have egalitarian wage policies.
ER  -